Blockchain

Blockchain for
vertical industries
Technology, use cases and challenges
Leading use cases and business models for
Thomas Lynch, Executive Director, Security Technology
Jack Kent, Research Director, Operators, Platforms & Media
technology
Ruomeng Wang, Senior of theAnalyst,
Research futureService Providers & Platforms
Jesus Gonzalez, Analyst II, Critical Communications
Don Tait, Principal Analyst, Cybersecurity & Digital ID

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Blockchain for vertical industries | Content

Contents
The blockchain arms race 2

What is blockchain? 3

How blockchain technology

works and key characteristics 4

Blockchain for
industry verticals 8

Vertical industry insights and

further reading 9

Challenges in blockchain
and distributed ledger 11

Find out more 12

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Blockchain for vertical industries | Content

The blockchain arms race

The boom of trials by some of the world’s largest banks, insurance
companies and manufacturing businesses shows how the world is taking
blockchain technology seriously. While the breadth and depth of blockchain
applications, trials and projects is expanding, there are relatively few
examples of blockchain applications being used in everyday life, with many
challenges to overcome ahead.

There are significant hurdles to blockchain The massive amount of investment pumped into
technology adoption because it is complex and can blockchain and distributed ledger technologies will
be difficult to understand. There are hundreds of accelerate innovation and evolution. In ten years, we
different implementations, as demonstrated by the may not recognize the commercial applications of
proliferation of cryptocurrency and token networks. blockchain technology, but they will have evolved
As the evolution of Bitcoin has demonstrated, there from several of the key innovations pioneered by
are challenges to scalability, usability and transaction Bitcoin and the cryptocurrency space. As the internet
costs. There are debates in the blockchain has demonstrated, one should not underestimate
community such as whether proof of work or proof distributed networks that can host apps based on
of stake is preferable, or whether private blockchains common code structures. The blockchain adventure
are even part of the discussion. Governance is also an has begun, and the race to the top is going to keep
issue; there is no central authority providing guidance the blockchain technology industry and its partners
on the right blockchain technologies nor does the in business for decades to come.
implementation of blockchain technology negate
existing regulatory conditions.

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Blockchain for vertical industries | Content

What is blockchain?
Blockchain technology enables the creation of secure,
distributed ledgers driven by cryptography
Blockchain has risen to prominence for managing transactions, especially in the
cryptocurrency market. The most known and discussed application of blockchain
technology is used for the Bitcoin cryptocurrency, yet the technology has many other
applications. In fact, there are more than a thousand cryptocurrency and token
networks as well as growing potential for use within a variety of vertical industries.
Much of the excitement and speculation around blockchain and distributed ledger
technology is tied to the ability to secure, manage and verify data in a tamper-
proof environment. Individual transactions are encrypted using public-private key
cryptography and verified by every node on the network. The built-in cryptography of
blockchains allows transactions or objects to be tracked without the need for a third
party and enables a secure, distributed database of transaction data that is instantly
verifiable by the community. This approach has the potential to replace traditional
database or escrow approaches and could revolutionize industries that require high
data security and integrity, such as the financial, medical, information technology (IT),
manufacturing and government verticals. There are, however, also many challenges,
including scalability and cost.
Read on to see how blockchain technology could change the way industries manage
transaction data and contracts, discover real-world implementation challenges, and
see how this business model could impact our world in the long-term.

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Blockchain for vertical industries | Content

How blockchain technology

works and key characteristics
Blockchain replaces gatekeepers, middlemen and record-keepers
with a more secure, automated and distributed system
The key characteristics of blockchain are attractive to many industries, governments and organizations. Bitcoin
is a strong example of how blockchain infrastructure and technical elements operate. The technology used to
record and store transactions for Bitcoin is applicable to a variety of industries outside of this specific market.

The technology behind Bitcoin

A deep dive into Bitcoin is helpful in illuminating the blockchain technology infrastructure:
–– Embedded cryptography – Bitcoin blockchain –– Transaction payments – Incentives are required to
technology automatically integrates public- and add transactions to a blockchain. The participants—
private-key cryptography as a default. This means known as “miners” in the Bitcoin network—are
that all transactions are natively encrypted with rewarded with Bitcoins for their work.
public and private keys. To unlock a particular
–– Network data security and integrity – Once the
transaction or “smart contract” on a blockchain,
data is added to the blockchain, it is encrypted
one would need to apply a specific private key to
with a unique hash then copied to all of the nodes
the public address. The public address encrypts
on the system. These transactions are linked by
the data so that it can only be unlocked with that
a hash generated by the prior transaction of the
specific private key.
blockchain. This means that if someone tries
–– Secure blocks – There are variations in the to alter the transaction, it alters the data in the
approach of various blockchain technologies, but entire blockchain down the line and is instantly
they all work on the same premise of grouping data recognized as fraudulent.
in a tamper-proof chain; as records are verified by
–– Peer to peer – The data in a blockchain is copied
the network members, they are added in blocks to
to “hosts” or “peers.” The peer-to-peer, distributed
the block chain. Each record or transaction must be
nature of blockchain technology makes data
verified by the community.
instantly verifiable and difficult, if not impossible, to
–– Proof of work verification – The most common tamper with. As soon as one copy is altered,
approach to verification is “proof of work.” The the rest of the network knows the data has
data is run through a cryptographic puzzle, which been compromised.
contributors to the network are asked to verify by
solving. This requires sufficient computing power to
decode the puzzle, hence the proof of work.

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Blockchain for vertical industries | Content

Hashing is crucial
Hashing, the process of encrypting transaction data, is used both for proof of work
as well as locking blocks into the blockchain with a unique signature that cannot be
altered. When cryptographic function is applied to a string of data, the output is an
unrecognizable code. If one letter in the code is altered, the output will be radically
different, making alterations instantly identifiable. This, combined with integrated
public- and private-key cryptography, is what makes the blockchain unique.
It is relatively easy to “hash,” or sign, the data, creating the output. Yet it is very difficult
to recognize the original message by looking at the output data or “digest” of the hash,
as shown in the diagram below. If even one character or binary digit is changed in
the input data, the hash function will render a completely different output, therefore
recognizing tampered data.
Below is a simple demonstration of how a cryptographic hash function is
applied to data:

INPUT DIGEST

JAN HASH FUNCTION BR45C

JANE HASH FUNCTION QWQ4T

JEN HASH FUNCTION 72-C

How the transaction steps work on Bitcoin

Step 1 – A transaction is sent to a public address. The transaction is encrypted using
a public and private key, which must be used simultaneously. Like a private message
locked inside a locked mailbox, the owner must have both the mailbox key and the
message key.
Step 2 – The encrypted data is “hashed” (signed with cryptography) and broadcast to
members who must use computing power to decode the hash to verify the data.
Step 3 – Once the transaction is verified, it is approved and added as a “block” of data
to the blockchain. This copy is then sent to the nodes of the network. Each new block
is applied with a hash from the prior block, meaning data cannot be altered once it is
added to the blockchain.
Step 4 – All data is timestamped to prevent duplicate transaction attempts.

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The diagram below illustrates how a block of data is added to a secure blockchain:

TRANSACTION A TRANSACTION B TRANSACTION C TRANSACTION D

HASH A VALUE HASH B VALUE HASH C VALUE HASH D VALUE

HASH VALUE AB HASH VALUE CD

Combined
hashvalue ABCD
+
Hash of block 49
BLOCK 1 BLOCK 2
+
Timestamp
+
Nonce

These digital and cryptographic techniques in Bitcoin create what is

known as “trustless consensus” in the system, meaning that collective
verification of the data ensures data integrity.

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Blockchain for vertical industries | Content

Blockchain for
industry verticals
FIND OUT MORE

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Blockchain for vertical industries | Content

Blockchain for
industry verticals
Blockchain technology can help make many industries more efficient by creating a distributed and automated
system for tracking goods, transactions or services. In short, it doesn’t require a single human or specific third
party to verify and lock down transactions; rather, they are verified and locked by a distributed system.
The most important aspect of the blockchain is its peer-to-peer nature—meaning the community polices itself
by collectively verifying transactions without the need for a third party. All transactions are encrypted and then
copied across many peers so that they cannot be tampered with.
Many of the services and transactions common to financial services, logistics and legal services are currently
overseen by third-party agents, often made up of teams of humans. Blockchain technology, as well as offshoots
such as private distributed ledgers, is now widely available and proliferating in the open source world.
Many large organizations and start-ups are working on projects that employ blockchain and other distributed
ledger technologies across industry verticals. Examples of these include the following:

–– Semiconductor – a growing market from suppliers –– Cryptocurrencies – token-backed networks

of graphics processing units (GPUs), application-
–– Financial – contracts and interbank settlement
specific integrated circuit (ASIC) chips customized
for performing the hash function, chip foundries –– Real estate – titling and contracts
and chip design firms
–– Healthcare – secure medical records
–– Chemicals – blockchain-based digital platforms
–– Pharmaceutical – verification and tracking of
intended to modernize and transform
prescription drugs
post-transaction management of physical energy
commodities trading –– Transportation and logistics – recording
movement of goods and completion of deliveries
–– Information technology and the Internet of
Things (IoT) – device tracking on a network and –– Identity protection – guarding against consumer
secure messaging system between devices identify theft

–– Media, advertising and telecoms – audience –– Legal – contracts and agreements

verification and advertising attribution; royalty
–– Social networks – public content and transactions
payments; fraud prevention; IoT enablement

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Vertical industry insights and
further reading
Blockchain in the Blockchain for telecoms
semiconductor industry operator services
In the quickly growing, volatile near-term Operators are investing, testing and
market for cryptocurrency, suppliers deploying blockchain technology to
of graphics processing unit (GPU), and transform their services, assessing the
application-specific integrated circuit current stage of deployments, and
(ASIC) chips customized for “mining investigating how, or even if, blockchain
ASICs,” along with the chip foundries should play a role.
and test/design firms that manufacture Download article
these chips, are doing well in the market.
Yet there may be a longer term, more Blockchain for identity protection
lucrative opportunity developing as
blockchain technology proliferates Blockchain has the potential to
into various non-currency related introduce improvements that can make
vertical markets. security more accessible and budget-
friendly. With smart contract capabilities,
Download article
there is potential for a secondary market
where users can benefit from sharing
Oil and gas, petchem industries
resources back to the network.
trialing blockchain solutions
Download article
Various types of solutions being trialed
in the O&G and petchem space highlight Blockchain for transportation
growing interest and the technology’s and logistics
potential for disrupting the status quo.
Find out what industry players are doing By introducing blockchain technology,
to push blockchain adoption forward. the transportation industry can achieve
cost and time efficiencies; bring in
Download article
process automation, transparency and
traceability within the supply chain;
Blockchain rising: What does it mean
and reduce scope for any kind of fraud,
for upstream and trading?
manipulations and product tampering.
What does blockchain portend for new Download article
and disruptive business models? Gain
insight from oil blockchain pioneers on
emerging oil industry applications and
strategies at this session co-hosted with
Global Blockchain Business Council
(GBBC) at CERA Week 2018.
Watch video

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Blockchain for vertical industries | Content

Challenges in
blockchain and
distributed ledger
FIND OUT MORE

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Blockchain for vertical industries | Content

Challenges in blockchain
and distributed ledger
A utopian view of blockchain technology often glosses over potential drawbacks. In the
cryptocurrency market, various blockchain networks are constantly making changes to
the code to show they can improve performance and handle the massive scale required
to process millions of transactions.
The process of aggregating and verifying data on a public blockchain is inherently
complex and requires many resources. Some of the drawbacks of public blockchain
technology include the following:
–– Scalability – Most blockchain systems have trouble achieving massive scale because
of the process of using “proof of work” and distributed cryptography to verify. As
the network grows, more computing process power is needed to keep up with the
number of transactions.
–– Transaction speed – A finite number of transactions can be added to a block per
minute. The average block in the Bitcoin network takes an hour to process. Individual
transactions have no defined time frame; the time depends on how busy the network
is as well as variables such as mining availability and the transaction fee.
–– Governance – A distributed ledger system such as a blockchain can pose regulatory
and legal questions: Who’s in charge? Where do you go to complain or regulate?
Where is the legal governance of data?
–– User complexity – Blockchain systems can be complex and require management of
cryptographic keys and addresses.
–– Cost – In many blockchain systems, fees must be paid to incentivize the verification
to process transactions. Fees are applied in various ways, depending on the system.
This can be costly. The use of blockchain as an underlying technology has not yet
been proven to be cost-effective. How much will organizations such as banks or
governments have to commit to get a return on investment?
–– Power – In a proof of work system such as Bitcoin, computing power is the currency
of the network. Computing strength consumes enormous amounts of power, which
has both an economic and environmental cost. This is driving the development of
some blockchain networks that rely on proof of stake, rather than proof of work, to
decrease the dependence on power to drive the system.

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Blockchain for vertical industries | Content

Find out more

Blockchain is gaining adoption in multiple industries, and is changing the way
the world does business. Discover more about opportunities and challenges
across diverse markets as IHS Markit continues to uncover the impact of
blockchain technology now and in the future.
Contact us to learn more about IHS Markit blockchain research and our upcoming
blockchain report, providing answers to key questions like:

–– What are the key drivers across –– Who are the leading suppliers
multiple vertical markets? of each vertical in blockchain?
–– Which verticals provide the –– What cost savings can be
most attractive opportunities achieved with DLT technology
and which carry the most by vertical?
potential threats?

For more information visit,

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